Pre-BlackBerry 10 Jitters

RIM will be either a $5 or a $30 stock depending on whether BlackBerry 10 turns out to be a great product or not.

NEW YORK ( TheStreet) -- In case you didn't follow the stock drama during the Research In Motion ( RIMM) earnings call Thursday night, here is a one-sentence summary:

The stock initially traded sharply up because most of the metrics were less catastrophic than expected, then it fell sharply when RIM disclosed that high-margin service revenue might decline sharply in the coming years.

This discussion is meaningless unless you understand what this service revenue is. Unlike, say, Samsung and HTC, RIM actually operates a network. It has invested billions of dollars in this network over the last 15 or so years, plus or minus.

Why did the company launch this network? There were primarily three reasons:

1. Back in the day, there just weren't any good data networks. Mike Lazaridis had a vision of providing great mobile email. Without great mobile networks, you couldn't do it.

No, BlackBerry does not own spectrum. It's not that kind of network. It's a behind-the-scenes control data network that inspects and compresses every packet. It works with the level of the network that's the radio spectrum and the protocols that touch the lower-level network elements: GPRS, EDGE, HSPA, LTE, etc.

2. These networks were, and in some cases still are today, capacity-constrained. Basically, RIM addressed this issue by compressing the data. When you receive an email on your BlackBerry, many fewer bits have been required to make this happen than, say, on an iPhone or Android.

3. Enterprises in particular need their messages to be encrypted. RIM provides servers for the enterprises to encrypt/decrypt, in order to talk to the handsets.

In the last couple of years, this service stream has started to look shakier than before -- I'll get into that in a moment -- but some money managers who don't quite understand the technology were of the belief that with BB 10 just around the corner, this service revenue would provide renewed hot air under the RIM revenue balloon, in a linear fashion to the handset revival.

This is the balloon RIM punctured last night, and which set the stock down almost 15% after having been up 6% only minutes before.

So what's the problem with this BlackBerry service revenue, even before BB 10 is launched next quarter?